CPO Prices to Consolidate

CPO sharp rally tested the line connecting its previous peaks at RM3118. The last 2-3 days of correction brought CPO prices below its medium-term uptrend line at RM3010-3015. It is likely that the price correction may continue in the medium-term.

Chart 1: CPO's monthly chart as at Jan 17, 2020 (Source: Investing.com)


Chart 2: CPO's daily chart as at Jan 17, 2020 (Source: Investing.com)

The sharp rally in CPO prices caused an upside breakout for Plant index at 6900 in early November. The ensuing rally brought Plant index to a high of 7900 in the final week of December last year. The last 3 weeks of correction has finally brought the Plant index below its medium-term uptrend line at 7550 last week. Unless CPO price recovers significantly next few days, Plant index is likely to go lower.


Chart 3; Plant's weekly chart as at Jan 17, 2020 (Source: Shareinvestor.com)


Chart 4; Plant''s daiy chart as at Jan 17, 2020 (Source: Shareinvestor.com)

Based on the above, I expect plantation share prices to continue to correct in the near term.

SOP: An Attractive Plantation Stock

Background

Sarawak Oil Palms Bhd ("SOP") is involved in the cultivation of oil palms and the operation of palm oil mills. Its business divisions include Plantation, Milling, Downstream, Marketing & Trading and Property Development.

In December 2016, it completed the acquisition of Shin Yang Oil Palm (Sarawak) Sdn Bhd (SYOP) from a related party, Shin Yang Holdings Sdn Bhd (SYHSB) for an enterprise value of RM873 million. This raised its total land bank by 65% to 119,653ha, with planted area increasing by 37% to 87,744ha.

SOP's Planted Hectarage as at December 2016 (from Annual Report for FY2016)

Historical Financial Performance

SOP's revenue has been on a steady uptrend since 2009. Profits, which peaked in FY2011, began to recover in FY2016 mainly due to the favorable palm products average realized prices which more than offset the drop of the Group's FFB production by 11% (as a result of the El-Nino phenomenon). The profits for FY2017 is projected to increase as the 1H2017 has already showed better results due to higher FFB production volume and higher average palm products realized price improvement and a fair value gain on derivative financial instruments of RM27 million.


Graph 1: SOP's last 19 years' P&L

Recent Financial Results

In QE30/6/2017, SOP's net profit dropped 2% q-o-q but rose 100% y-o-y to RM67 million while revenue rose 9% q-o-q or 28% y-o-y to RM1.22 billion.


Table 1: SOP's last 8 quarters' P&L


Graph 2: SOP's last 12 quarters' P&L

Latest Financial Position

As at 30/6/2017, SOP's financial position is deemed healthy with current ratio at 1.65x and gearing ratio at 0.96x.

Valuation

SOP (closed at RM4.17 yesterday) is now trading at a trailing PER of 10.5x (based on last 4 quarters' EPS of 39.6 sen). This compared favorably to other larger plantation groups, like KLK (with PER of 22x) or UTDPLT (with PER of 17x) or GENP (with PER of 18x).

Technical Outlook

SOP has broken above its downtrend line at RM3.60 in August. On October 2, it broke above the "horizontal line" at RM4.00 - albeit on thin volume. Yesterday it continued to rise - still on relatively thin volume. Its immediate resistance is at the horizontal line at RM4.45.


Chart 1: SOP's weekly chart as at Oct 3, 2017 (Source: MalaysiaStock.biz)

SOP is in a long-term uptrend line with support at RM3.50.


Chart 2: SOP's monthly chart as at Oct 3, 2017 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance & position, attractive valuation & positive technical outlook, SOP could be a good stock for long-term investment.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

CEPAT: Too Slow For Comfort

Result Update

For QE30/6/2017, Cepat's net profit increased by 56% q-o-q or 91% y-o-y to RM9.7 million while turnover rose 19% q-o-q or 37% y-o-y to RM70 million. Profits rose q-o-q due mainly to an increase in FFB production and export of electricity by 27% and 21% respectively while the oil mill also contributed by giving a higher milling margin. CPO and PK selling price decreased by 14% and 39% respectively.

 

Table: Cepat's last 8 quarterly results

Graph: Cepat's last 43 quarterly results

Valuation

Cepat (at RM0.84 yesterday) is trading at a PE of 8 times (based on adjusted last 4 quarters' EPS of 10.48 sen) as well as trading at only 0.5x its book value (based on NTA of RM1.57 per share as at 30/6/2017).At these multiples, Cepat is deemed fairly attractive.

Technical Outlook

Cepat is still in an intermediate downtrend line. If it can break above this downtrend line at RM0.94, Cepat may begin its next upleg.

Chart: Cepat's monthy chart as at November 16, 2016 (Source: Malaysiastock.biz)

Conclusion

Based on improving financial performance & attractive valuation, Cepat could be a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

UTDPLT: Earning Soared

Background

Unoted Plantation Bhd ("UTDPLT") is involved in the cultivation and processing of palm oil, coconut and other plantation crops in a sustainable manner. Its estates are located in Malaysia and Indonesia, covering a total area of 50,855 hectares. For more, go here.

Historical Financial Performance

UTDPLT's top-line and bottom-line are both approaching the high recorded in FY2011. If profits can surpass the level achieved in FY2011, UTDPLT's share price may break to new high- similar to the 2010 upside breakout of the RM12.00 mark which led to the rally to RM27 by 2015. This is the basis for a call to track UTDPLT financial performance fro the next 1-2 quarters in anticipation of profit & price breakout.


Graph: UTDPLT's last 52 quarters' P&L
 
Recent Financial Results

For QE30/6/2017, UTDPLT's net profit rose 41% q-o-q or 52% y-o-y to RM110 million while revenue was mixed - down 6% q-o-q but up 28% y-o-y - to RM355 million. Profits rose q-o-q due to better financial results from its plantation & refinery divisions. The plantation division registered a 41.8% increase in the profit before tax in the current quarter from the previous quarter mainly due to a combination of higher production of CPO and PK, lower cost of production of CPO and a higher average CPO price achieved. The refinery recorded a 36.3% increase in profit before tax mainly due to more favorable hedging and trading positions.


Table: UTDPLT's last 8 quarterly P&L

Prospects For FY2017

Like other plantation companies, UTDPLT enjoyed recovery in palm oil production after the passing of El Nino in 2015-2016. To cap it off, crude palm oil prices had rallied due to concern that the recovery in overall palm oil production for the full year 2017, may not be as large as initially expected. Higher prices and output are likely to lead to a satisfactory year for FY2017.

Valuation

UTDPLT (closed at RM28.20 in the morning session) is now trading at a PER of 15.2x based on last 4 quarters' EPS of RM1.85. Its dividend yield is quite decent at 4.1%.

Technical Outlook

UTDPLT is in an uptrend with support from its 10-month SMA line at RM27.00. That support also coincides with the support from the horizontal line.


Chart 1: UTDPLT's monthly chart as at July 31, 2017 (Source: ShareInvestor.com)
 


Chart 1: UTDPLT's monthly chart as at July 31, 2017 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance, fair valuation & positive technical outlook, UTDPLT could be a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

FGV: CEO & CFO given leave of absence

FGV has just announced that the Group President/Chief Executive Officer and Group Chief Financial Officer of FGV have been given leave of absence commencing from 6 June 2017 pending investigations of certain transactions under Delima Oil Products Sdn Bhd, a subsidiary of FGV. For more (not very much more), go to Bursa announcement & The Edge report. 

Despite being an important stock for political reason, FGV is such a mess that it is not hard to see the stock swooning to lower price level before local institutions will step in to stabilize the share price. Let's hope it can hold at the immediate support from the line connecting the recent lows at RM1.55. If that support fails, it may go to the November 2016 low of RM1.40.1.41. 

Chart: FGV's weekly chart as at Jun 6, 2017_12.30 (Source: Malaysiastock.biz)

FGV: What's Up!

FGV tumbled down badly over the past 3 days, from a high of RM2.10 on April 28 to an intra-day low of RM1.79 today. From the daily chart, we can see that FGV has broken its intermediate uptrend line, SS at RM2.00. It has just tested the support at the horizontal line at RM1.80.


Chart 1: FGV's daily chart as at May 4, 2017_4.00pm (Source: Malaysiastock.biz)

If it breaks below the RM1.80 support, it may go to RM1.40-1.50!


Chart 2: FGV's weekly chart as at May 4, 2017_4.00pm (Source: Malaysiastock.biz) 

The reason for the sharp decline is not because of the decline in CPO prices. Though CPO is still in an intermediate downtrend line, it has rebounded a bit in the past few days. In any event, other plantation stocks are holding up quite well.


Chart 3: CPO's chart as at May 4, 2017_4.00pm (Source: ifs.marketcenter.com)  

I believe the reason for the sharp decline is that Felda, the parent of FGV, is putting a squeeze on FGV to get a better deal on the land lease  agreement with FGV. This being an election year, only turn the heat up on Felda's political masters to get a good deal from the land lease agreement in order to reward the settlers. Any good deal for Felda will likely be a bad deal for FGV. For more, go here.

But the politicians must also be mindful that any excessive drop in FGV share price will anger these settlers, who are also shareholders of FGV. How to structure a win-win deal will be a true test for these politicians!

Based on the sharp decline in the share price over the past 3 days, FGV should be due for a rebound. Any further drop to the horrific low of RM1.50 will not be tolerated by anyone. If you are having FGV in your portfolio, you may be better off just holding on it than joining the sell side now.

Plantation Stocks: Limited Upside

There is a divergence between the steady rise in CPO prices and the stagnant share prices of many plantation stocks. Look at the CPO and Plantation Index charts below.


Chart 1: CPO's weekly chart as at Jan 10, 2017 (Source: ifs.marketcenter.com)


Chart 2: Plantation index's monthly chart as at Jan 26, 2017 (Source: Shareinvestor.com)   

Share prices of plantation stocks remain stagnant because earnings of many plantation companies have remained stagnant. That's the surprising conclusion I got when I tallied up the earnings of 4 plantation companies which are mainly concentrated in the plantation business. Notice that earnings peaked in 2011 while their revenues continue to rise.


Table: Selected Plantation Companies' Revenue & Earnings for past 12 years

Now, we know that CPO prices in MYR have risen in the past 6-7 months because of two factors: lower CPO output (due to lower FFB output because of the El Nino effect) as well as the weakening of MYR. What would happen to CPO prices in MYR if MYR strengthens (or USD-MYR weakens) or when FFB output increases as the El Nino effect subsides. Chart 3 below shows that USD-MYR has probably made a temporary top.


Chart 3: USD-MYR's weekly chart as at Jan 26, 2017 (Source: Investing.com)

CPO prices in USD has limited upside as it struggles to overcome the "horizontal line" at USD600.


Chart 4: CPO (USD)'s weekly chart as at Jan 26, 2017 (Source: Investing.com)

If CPO prices in USD and USD-MYR begin to correct, we will see a bearish reversal in CPO prices in MYR. This will lead to a drop in the overall earnings of plantation companies and eventually a decline in their share prices. Thus we have to be careful not to be overly-exposed to the plantation sector.

FGV: Market Over-reaction?

Results Update

In QE30/9/2016, FGV reported a net loss of RM23 million due to poorer performance for all its 5 divisions (Palm Upstream, Palm Downstream, Sugar, TMLO & Others). However it must be noted that Palm Upstream reported lower profit of 39.4% q-o-q mainly due to higher fair value charge of RM105.32 million on LLA compared to RM12.24 million charged in preceding quarter (QE30/6/2016). Excluding the LLA effect, the segment’s profit would have been RM195.67 million compared to RM161.25 million in preceding quarter and the FGV would not have reported a net loss for the quarter.


Table 1: FGV's last 8 quarterly results


Graph 1: FGV's last 14 quarterly results

Reported Fraud In Turkish Operation

In the notes to the account (under Prospects on Page 32), it was reported that "(t)he performance of the Group for the quarter was dragged down by the significant losses suffered by one of the jointly controlled entity due to stock losses discovered in this quarter." We now learned that the loss was due to fraud in its 50%-owned unit in Turkey, which resulted in a stock loss of RM57million. For more, go here.

This reported fraud, which has been included into its latest quarterly result (surreptitiously), has caused a further selldown of FGV shares today. FGV suffered a selldown yesterday when it reported a net loss when nearly every plantation companies were reporting better results. In my opinion, the market could be over-reacting to the negative news.

Industry Outlook

From the chart below, we can see that CPO is in an uptrend line, with support at RM2700. At this price, the profit for plantation companies is very substantial.


Chart 1: CPO's daily chart as at Nov 23, 2016_4.00pm (Source: ifs.marketcenter.com)

Technical Outlook

FGV has dropped back significantly from its recent high of RM2.40-2.50. It may test the support from the horizontal line at RM1.50. This should be a good support level for a bottoming phase to form. At this level, funds may begin to accumulate for a recovery play which will be driven by higher earnings as well as speculative buying ahead of 2017-2018 General Election.


Chart 2: FGV's daily chart as at Nov 23, 2016_4.00 (Source: Shareinvestor.com)


Chart 3: FGV's weekly chart as at Nov 23, 2016_4.00 (Source: Shareinvestor.com)

Conclusion

Based on expected return to profitability, better prospects for the plantation sector, a more transparent management team and potential speculative play ahead of next General Election, I believe FGV is a good stock to buy at the present price level.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

Cepat: Earnings Jumped

Background

Cepatwawasan Group Bhd ('Cepat') is cultivating oil palm and operating palm oil mills; operating biomass & bio-gas renewal energy power plants and sells oil palm products.


via Company's website

Result Update

For QE30/9/2016, Cepat's net profit increased by 105% q-o-q or 187% y-o-y to RM10.4 million while turnover rose 54% q-o-q or 8% y-o-y to RM79 million.

Despite a drop in construction income of RM29.95 million arising from the recognition of IC Interpretation 12 Service Concession Agreements for the Power Plant segment as compared to the preceding year corresponding quarter, revenue rose by RM5.55 million to RM79.08 million y-o-y mainly due to an increase in both sales volume and prices of CPO and PK. Sales volume of CPO and PK increased by 31% and 39 % respectively whereas price of CPO and PK increased by 26% and 89% respectively.

Profit before tax rose RM8.88 million to RM14.38 million y-o-y mainly due to an increase in CPO and PK price by 26% and 89% respectively and a corresponding increase in FFB price by 42%.

Performance of the respective operating business segments on y-o-y basis are as follows:

• Plantation – The increase in profit before tax by RM6.27 million (>100%) mainly due to higher FFB price by 42%.
• Oil Mill – The increase in profit before tax by RM1.79 million (>100%) from loss before tax of RM0.05 million to a profit before tax of RM1.74 million was mainly due to higher milling margin and higher CPO and PK sales volume by 31% and 39% respectively as well as higher CPO and PK price by 26% and 89% .
• Renewable Energy Power Plant – The increase in profit before tax by RM1.99 million (>100%) mainly due to increase in efficiency and export of electricity by 29%. The 12MW Biomass Power Plant generated and exported 15,715,635 kWh for this current quarter as compared to 12,170,697 kWh in the corresponding preceding quarter.

(Note: The results was announced on October 20, 2016.)


Table 1: Cepat's last 8 quarterly results


Graph 1: Cepat's last 40 quarterly results

Valuation

Cepat (at RM0.875 as at end of morning session) is trading at a PE of 18.6 times (based on adjusted last 4 quarters' EPS of 4.76 sen). However, if Cepat can maintain its earning similar to the last 2 quarters, then its full-year EPS would be about 10 sen. Its PER would be at a decent 8.8 times.

Technical Outlook

Cepat broke above its intermediate downtrend line, RR at RM0.72 in late October. On November 11, it broke above the resistance from the horizontal line at RM0.82. Its immediate resistance will be at RM0.95 and beyond that at RM1.05.


Chart 1: Cepat's daily chart as at November 16, 2016 (Source: Chartnexus)


Chart 2: Cepat's weekly chart as at November 16, 2016 (Source: Chartnexus)

Conclusion

Based on improving financial performance & bullish technical outlook, Cepat could be a good stock for Trading BUY.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

GLBhd: Bullish Breakout?

In June last year, Golden Land Bhd ('GLBhd') announced the sale of four plantation-based firms and 836.1ha oil palm land in Sabah to Felda Global Ventures Holdings Bhd (FGV) for RM655million cash. For more, go here.

It intends to distribute RM190.3 million to its shareholders which translates into a special dividend of RM0.13 plus a capital repayment of RM0.75 per share. The distribution of RM190.3 million represents 43% of the net sale proceeds of RM444 million while the balance will be used for the plantation and property development business (43%), working capital (10%) and estimated expenses (4%). With the bulk of its operation sold, GLBhd will have to rebuild itself. For more, go here.

Charwise, this stock has been trapped in a large symmetrical triangle, ABC for about 10 months. It has a bullish breakout above the triangle at RM1.57-1.58. MACD has entered positive territory and +DMI is rising (while -DMI is declining and ADX is trending higher). The stock is likely to commence its upleg soon.

Based on the technical breakout only, GLBhd could be a trading BUY.

 
Chart: GLBhd's daily chart as at Mar 15, 2016_12.00pm (Source: ShareInvestor.com)

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, GLBhd.

CPO: Short-term bearish

Last week, the Parabolic SAR (SAR stands for 'stop-and-reversal' indicator) has moved above the CPO price. This signals the correction in CPO, which would probably begin in earnest after it breaks below the medium-term uptrend line, YZ at RM2450. Below this support, CPO may recruit buying support at RM2300 & RM2150.


Chart 1: CPO's weeky chart as at Mar 5, 2016(source: ifs.marketcenter.com) 

Below we can see the movement of the Plantation index (with MACD indicator) as compared to CPO (in USD). From 2012 to early 2014, Plantation index had risen even though CPO (in USD) was in a downtrend. This downtrend has persisted until today (albeit a minor rebound) while Plantation index rebounded fairly well in the past 6 months.

Based on the bearish signal from CPO's weekly chart above, I believe that Plantation stocks should come under selling pressure in the coming days.


Chart 2: Plantation and CPO (USD)'s monthly chart as at Mar 5, 2016 (source: ShareInvestor.com & indexmundi.com) 

JTiasa: Possible breakout

JTiasa has broken above its intermediate downtrend line, RR at RM1.33 three weeks ago. It attempted to rally - without success - as it was unable to overcome the horizontal line at RM1.37-1.39. Today, it managed to charge above this resistance. As at 12.15pm, it was trading at RM1.41.

If JTiasa can stay above the RM1.40 mark, its next upleg could begin. Its next resistance at RM1.75 could be the target if the stock breaks into a rally.


Chart 1: JTiasa's weekly chart as at Dec 31, 2015 (Source: Interachart.com.com)

Another Sarawakian timber-cum-plantation company which had done very well in the past 3 months is Ta Ann. From the chart below, we can see that it broke above its intermediate downtrend line, RR at RM3.70 in mid-October last year and rallied to test and eventually break above the horizontal line at RM4.50. Ta Ann could potentially hit the 1-for-1 target of RM5.60.


Chart 2: TaAnn's weekly chart as at Dec 31, 2015 (Source: Interachart.com.com) 

 Based on the above, I believe that JTiasa could be a good trading BUY.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, JTiasa.